Fifty percent of Americans bake the entire economic pie
The window for any real tax reform is closing fast. In a general public policy sense, the actions of leaders in a republic should reflect the sentiments of the electorate. Change is only possible when a majority of the country desires it. As such, it is only reasonable to expect leadership to push for the positive reform of a system that a majority of the electorate uses.
As it stands now, the numbers show that a shrinking majority of Americans are actually paying taxes. The tax system is inching dangerously close to becoming fully funded by a minority of the population. The top 50 percent of wage earners pay 96.54 percent of all income taxes.
So what do you say? Let the “rich” top 50 percent pay the taxes, right? Based on 2003 Internal Revenue Service data, the top 50 percent of wage earners included all individuals and jointly filing couples earning $29,019 or more. These are not the people that are stereotypically associated with the word “rich.” However, when politicians talk about how only the rich get tax breaks, these particular taxpayers are included in those sentiments.
Soon, a minority of the nation’s population will be shouldering the entirety of the income tax burden. This is a big problem. A setup where the majority does not pay for entitlement programs (Medicare, Medicaid, Social Security), if left unchecked, will bankrupt the country and not aid in reducing and reforming said programs. The costs of the wars in Iraq and Afghanistan pale in comparison to the funding that goes towards these backwards, broken, and hole-ridden social safety nets.
Politicians and lobbyists complain that the tax cuts do not give enough money back to this country’s poor. Some people will balk at this next statement, but it is empirically sound. There is no way to cut taxes on the lower-income 50 percent of this country when the lower 50 percent do not pay any income taxes!
The danger here is seen in the current leadership. Traditionally, overspending and entitlement program growth have been liberal problems, but now it is spreading to certain Republican leadership. These alleged Republicans have violated their conservative beliefs in favor of incumbent pork barrel spending.
Yet this is not about spending problems; this is about the impossibility of tax reform when a minority of the country foots the entire bill.
The policy arena is currently debating two significant reform concepts that could solve this problem. These soutions are known as the fair tax and the flat tax.
The fair tax is a consumption-based tax. This taxation is not conscripted — that is, consumers choose to pay taxes by the goods they consume. This tax also promotes savings and investment. The fair tax requires that other tax elements be repealed prior to its enactment.
The site www.fairtax.org states three basic requirements for establishment of the fair tax. First, the “passage of legislation that repeals the income tax, the payroll tax in its entirety, the estate tax, the gift tax, the capital gains tax, the alternative minimum tax, the self-employment tax, and the corporate tax.” Next, the “passage of laws that install a single-rate, national sales tax on all new goods and services at the point of final purchase for consumption, and that provides for a universal rebate in an amount equal to the sales tax on essential goods and services up to poverty-level spending.” And finally, the last element is the “adoption of a constitutional amendment to repeal the 16th Amendment and to prohibit income taxes.”
The flat tax is another simplified taxation system. Steve Forbes proposed this plan, calling for deep tax cuts across the board. The plan calls for “not one cent [given] to the IRS on the first $36,000 of income. Anything more than that would be taxed at a flat, fair 17 percent.”
The rationale behind the flat tax is simplicity, elimination of double taxation, and general pro-growth sentiment. It is now common knowledge that cutting taxes leads to higher growth, and in most cases an increase in overall federal tax revenues. While there are inflation dangers when taxes are cut, generally they’ve been successful in stimulating the economy. This line of reasoning carries the bulk of the weight behind the flat tax argument, along with the near elimination of the IRS and curtailment of double taxation.
Positive reform, in any method, should be welcomed by taxpayers. However, as the number of those who actually pay dwindles, the slippery slope where citizens footing the bill currently live continues to erode. Eventually, the need for tax reform will be overshadowed by those living off the teat of the taxpaying public.
Less than 50 percent of the population pays 99 percent or more of the federal income tax bill. In the event that the majority of people no longer pays taxes, the politicians — who now barely pay attention to the calls for tax reform — will have no incentive to even consider reform. This is the final scenario that ends all hope of true tax reform.
We must avoid this situation at all costs. It will change our capitalist-based system into a socialist system of wealth redistribution. The United States of America must not allow itself to slide so far to the left that the sometimes attractive but continually disproved practices of socialism pervade the nation.